Live Markets: A blurring growth-value divide
LIVE MARKETS-A blurring growth-value divide Adds new blog entry
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
A BLURRING GROWTH-VALUE DIVIDE
Next week, the Russell Index reconstitution will take effect and the resulting reshuffle is going to lead to some interesting alterations to Russell's Growth .RLGB and Value indexes.
Growth stocks traditionally trade at premium valuations and deliver higher revenue and earnings growth, whereas value stocks traditionally trade at lower valuation multiples. The AI boom and date centre buildout is blurring the lines between a traditional growth stock and a typical value stock.
"Many investors continue to view mega-cap technology companies as purely growth exposures. Yet many of these firms now pay dividends and no longer trade at stretched valuations," wrote Morgan Stanley managing director Chris Morahan in a blog post earlier this week.
"Meanwhile, some previously cyclical, low-valuation companies are experiencing rapid growth driven by AI infrastructure buildout."
For the index providers, that's presenting a problem. Last year, Amazon AMZN.O, Meta Platforms META.O and Alphabet GOOGL.O were added to the Russell 1000 Value .RLV Index, and that trend looks set to accelerate next week.
"Microsoft and Apple have shifted from exclusively Growth Index constituents to top-six holdings in both Growth and Value indexes, while Amazon is expected to be the largest holding in the Russell 1000 Value Index after previously being almost exclusively in Growth," Morahan noted.
That means that value indexes are going to behave differently to how they have in the past.
"Remaining overweight value is going to implicitly provide much more concentrated mega cap tech exposure. These stocks are naturally less sensitive to typical macro drivers of traditional value," said Variant Perception in a note.
"This suggests the need for more refinement of sector allocations beyond generic value vs growth ... our asset allocation engine likes a barbell of cyclical value (financials, energy), defensive value (healthcare) and secular growth (semiconductors)."
(Samuel Indyk)
*****
EARLIER ON LIVE MARKETS:
BACK TO THE BEFORE? CLICK HERE
MONETARY POLICY'S NEW ERA CLICK HERE
BURNHAM BY-ELECTION IN THE BAG: WHAT IT MEANS FOR MARKETS CLICK HERE
EUROPEAN SHARES SET FOR POSITIVE WEEK CLICK HERE
EUROPE BEFORE THE BELL: RELIEF RALLY SET FOR PAUSE CLICK HERE
WHAT A GREAT WEEK FOR PEACE CLICK HERE